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Next week will improve reserves: SBP governor

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Next week will improve reserves: SBP governor

Addressing businessmen at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), he acknowledged that the country’s reserves had fallen quite low but added that projects in the pipeline would help improve them
In the absence of any dollar inflows from the International Monetary Fund (IMF) or friendly countries, the central bank’s forex reserves dropped to $4.34 billion in the week ending Jan 6, the lowest since February 2014.

The country has been facing a serious dollar shortage, which is resulting in restricted imports of even food and industrial raw materials. The latest position of foreign exchange reserves reflects that the country doesn’t have sufficient dollars to cover even one month of average imports.

While the central bank had lifted curbs on the imports of several essential items required as raw material earlier this year, several associations across different sectors have complained that the non-opening of letters of credit (LCs) is creating shortages, with several companies suspending operations in recent months.

In his address today, SBP Governor Ahmed explained the move to restrict imports, saying that banks had been directed to prioritise the opening of LCs for imports of food, pharmaceutical items, oil, agriculture-related items and raw material required by export-oriented industries.

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“Of course, when we export, our inflows increase. We set some priorities to facilitate [exporters] so their businesses could continue and there was no negative impact on exports.

“We tried to prioritise these sectors and then we said banks could facilitate the rest of the sectors if they had liquidity,” he said. However, this did not mean that other sectors were not important for the central bank, Ahmad added.

“We have to facilitate them but within our capacity and [level of] inflows. Obviously, we do not have dollars available locally.”

Remittances, export proceeds and foreign loans help build the State Bank’s capacity to support businesses, the governor noted. “Therefore, we are focusing on our capacity and intervening administratively to [curb] imports so they remain at a reasonable level,” he added.

Plan to facilitate LCs

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He said the central bank would make an action plan soon to facilitate the opening of LCs. “I assure you these are top-priority issues for us,” he stressed.

He noted that the SBP had allowed imports on a deferred payment basis, beyond 365 days, from shipment date.

Imports funded by foreign exchange available with the importers and raised through equity or project loan/import loan from abroad had also been allowed, he recalled.

If banks were not implementing the directives, then the State Bank would take it up with them, he assured.

Economic slowdown

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Reserves have been in sharp decline since the beginning of fiscal year 2023. Analysts expect high inflation and low industrial output in the months ahead as production is being squeezed due to the unavailability of imported raw materials.

Manufacturers associated with the Karachi Chamber of Commerce and Industry claimed recently that banks were not even processing $1,500 payments for the import of spare parts — a phenomenon that is bringing the entire supply chain to a standstill.

Large-scale manufacturing has shrunk for three consecutive months, and several companies, including Indus Motor, Pak Suzuki and Nishat Chunian, have partially suspended operations in recent months.

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Finance ministry cites higher inflation, external debt payments as risks

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Finance ministry cites higher inflation, external debt payments as risks

 The Ministry of Finance has again warned that Pakistan will continue facing multiple challenges mainly because of higher inflation and external debt repayments.

In its monthly economic update and outlook for May, the ministry, however, hoped that the inflation would peak at 34 percent to 36 per cent and start easing thanks to reduction in international commodity prices – thus absorbing the negative impact of currency depreciation.

The global commodity prices witnessed a 14 per cent reduction in the first quarter of 2023 and were roughly 30 per cent lower than their historic peak in June 2022 by March-end.

Moreover, the better crop outlook resulting from measures like Kissan Package and the recent reduction in POL prices would help achieve price stability.

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However, the continued rise in prices during May is due to flood damages, disruptions in supply chains, devaluation brought by the macro-economic imbalances and political uncertainty.

Pakistan’s economy experienced 0.29 per cent provisional GDP growth in the fiscal year 2022-23 on account of many challenges emanating from the uncertain external and domestic economic environment, the ministry noted.

“The challenges triggered CPI inflation to remain on a higher trajectory despite monetary tightening primarily due to the rupee depreciation. External payments also remained burdened due to lesser foreign exchange inflows.”

According to the ministry, tax collection by the Federal Board of Revenue (FBR) by 16.1 per cent during the July-April period but remained less than the target.

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NEPRA approves Rs1.60 hike in power tariff for April

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NEPRA approves Rs1.60 hike in power tariff for April

 The National Electric Power Regulatory Authority (NEPRA) on Wednesday approved an increase of Rs1.60 per unit in the electricity prices.

The price hike comes in shape of monthly Fuel Charges Adjustment (FCA) for April after the Central Power Purchasing Agency (CPPA) requested an increase of Rs2.01. However, the NEPRA ascertained an Rs.160 per unit upward adjustment.

All the consumers of various power distribution companies (Discos) except those falling in the lifeline category would be affected by the move.

Moreover, the latest price hike isn’t applicable to the consumers covered by K-electric, which supplies electricity to Karachi and some surrounding areas.

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Pakistan censures IMF for interfering in domestic affairs

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Pakistan censures IMF for interfering in domestic affairs

State Minister for Finance and Revenue Dr Aisha Ghaus Pasha on Wednesday censured the International Monetary Fund (IMF) over its “interference” in Pakistan’s internal matters, a day after the comments passed by a top official of the international lender.

She described terming IMF Mission Chief for Pakistan Nathan Porter’s statement — regarding the political situation in the country — “extraordinary”. Pakistan’s conduct was in line with the law, the state minister said.

However, Dr Pasha Dr Pasha confirmed that Prime Minister Shehbaz Sharif contacted IMF Managing Director Kristalina Georgieva and assured her that Pakistan would meet all the obligations.

When asked about Pakistan’s plan of action in case it fails to convince the fund before the expiry of the programme on June 30, she said the finance ministry was not sitting with its eyes closed.

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“There is always a Plan B but out priority is to revive the IMF programme,” Dr Pasha said, adding that the delay in agreement was not in the interests of both Pakistan and the IMF.

On Tuesday, Porter had said, “We take note of recent political developments, and while we do not comment on domestic politics, we do hope that a peaceful way forward is found in line with the Constitution and the rule of law.”

He also said that they were engaging with Pakistan to pave the way for the international lender’s board meeting and talks would focus on the budget for next financial year.

Porter’s statement also had a long list of demands including restoration of foreign exchange proper market functioning, keeping in mind programme goals in preparation of the upcoming budget, and adequate financing.

He said broadly speaking, “overcoming the present economic and financial challenges would require sustained policy efforts and reforms for Pakistan to regain strong and inclusive private-led growth.”

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